Question: Evaluating the Effects of Three Inventory Methods on Income from Operations, Income Taxes, and Net Income (Perpetual Inventory) Courtney Company uses a perpetual inventory system. Data for 2009: beginning merchandise inventory (December 31, 2008), 1,000 units at $35; purchases include 2,000 units at $38 on March 22 and 3,000 units at $40 on July 1; operating expenses (excluding income taxes), $71,000; sales for the year include 1,500 units sold on April 14 and 3,500 sold on September 30; sales price per unit, $70; and income tax expense is 30 percent of income from operations.
Required: 1. Compute cost of goods sold under the FIFO, LIFO, and weighted average costing methods using a format (Round weighted average cost per unit to the nearest tenth of a cent; three decimal places.) Then prepare income statements for each method using a format similar to the following:
2. Between FIFO and LIFO, which method is preferable in terms of ( a) maximizing operating income or ( b) minimizing income taxes? Explain.
3. What would be your answer to requirement 2 if costs were falling? Explain.